LG Chem plans new battery plant

＄2B will be invested in massive second facility in Nanjing

According to the Korean battery maker on Thursday, it will break ground in October with the aim of starting operations one year later. The investment will be made gradually through 2023 to increase the plant’s total output capacity to 32 gigawatt hours (GWh) per year, enough to build 500,000 electric cars.

The new factory will produce energy storage systems and small cell batteries used in smartphones and tablet PCs on top of batteries for electric vehicles.

It is a huge investment considering the total output capacity of the company’s existing four battery facilities at home and abroad amounts to roughly 18 GWh as of the beginning of this year. Its Korean facility in Ochang, North Chungcheong, has roughly 6 GWh production capacity. A facility in Poland also has roughly 6 GWh production capacity, according to a spokesperson from LG Chem.

The new factory will likely become a global production base for the company that seeks to export huge amount of batteries to global carmakers. LG Chem has inked an accumulated 42 trillion won (＄36.8 billion) worth of battery orders globally - including from General Motors and Ford in the United States and Korea’s largest carmaker Hyundai Motor - as of the end of last year.

LG Chem CEO Park Jin-soo emphasized the need to keep expanding the production capacity of its battery facilities as global automakers have announced plans to sharply increase the production of electric vehicles from 2020, during a meeting with reporters in March. The CEO added that the company plans to expand the total output capacity to roughly 32 GWh from the existing four facilities by the end of this year and further increase the capacity to 70 GWh by 2020.

Analysts also say the factory will be used to meet the growing battery demand within China as the country’s electric car incentives will be gone from 2020.

While incentives from central and regional governments make electric vehicles more affordable in China, cars using batteries from Korean companies, including LG Chem and Samsung SDI, have been excluded from the incentive list, making it difficult for Korean players to compete in the populous country. However, as the incentives are expected to be gone altogether in 2020, analyst Lee Dong-wook from Kiwoom Securities said, “LG Chem’s move may be in preparation for future competition in the market.”

As the company has agreed to set up two joint ventures that make battery materials with China’s Huayou Cobalt in April, setting up a new battery facility in China also makes it easier to secure a stable supply of battery ingredients like cobalt. The joint venture facilities - one in Zhejiang Province, on the eastern coast of China, and the other in Jiangsu Province - will start operations from 2020.

In a separate move, the company is also expected to make roughly 2 trillion won of investment into its petrochemical factory in Yeosu, South Jeolla. Details regarding the investment will be finalized after a board of directors meeting is held as early as next week.

The company is considering adding a naphtha cracking center, a facility for producing basic petrochemicals such as ethylene and propylene by cracking naphtha at high temperature. Naphtha is a flammable hydrocarbon mixture obtained by refining crude oil.